Monday, March 18, 2013

Give us land, lots of land

Whether under starry skies above, or not, Frédéric Robert-Nicoud and Christian Hilber, say, 'Don't fence us in (anymore than you already have)';
Land use planning policies can, in principle, raise welfare by correcting market failures. Recent evidence, however, casts doubt on this proposition and suggests that such regulations have strong adverse net effects. Turner et al. (2012) estimate the net cost of land use regulations as a proportion of land value to reach a hefty 38% in their sample of residential plot transactions across the US. In an earlier study, Cheshire and Shepphard (2002) estimate the net costs of land use planning policies in the UK to amount to as much as 3.9% of annual household incomes. We are talking about big numbers.
These big numbers hide substantial heterogeneity. Glaeser et al. (2005) estimate that land use regulations are akin to a ‘shadow’ tax that represents over 50% of the values of houses in Manhattan and San Francisco, 20% in DC and Boston, 12% in NYC or Salt Lake City, and 0% in Detroit, Baltimore, and Houston (see Table 1, column 3). Likewise, Cheshire and Hilber (2008) estimate the regulatory tax for 14 British and 8 continental European office locations. The average shadow tax over the sample period amounts to a staggering 800% of marginal construction costs in the West End of London, 437% in Frankfurt, 97% in Newcastle, and 68% in Brussels.

No surprise to find that Public Choice theory explains their findings;
...we formalise a theory in which land use regulations reflect land-based interests, more broadly defined.... These land-based interests encompass those of homeowners and also those of landlords and those of absentee landowners. This is consistent with the idea that planning boards are amenable not just to the electorate but also to lobbying influence and to pressures from various interest groups. Solé-Ollé and Viladecans-Marsal (2011) and Schone et al. (2011) provide indirect empirical evidence for the relevance of lobbying by land developers in Spain and France, respectively. The conviction of former Baltimore mayor Sheila Dixon for taking bribes from developers in 2009 suggests that such pressures can also take malign forms.

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